Friday, September 5, 2008

"Clarium Capital Management LLC, the $7 billion hedge-fund firm founded by Peter Thiel, fell about 13 percent in August, its biggest monthly loss, as it bet against the U.S. dollar."

"Before August, Clarium's biggest monthly loss was in March 2004 when it fell 11.4 percent, according to an investor letter."

You'll recall I covered Clarium in my hedge fund 13F analysis series here. And, this isn't the first tough month for Clarium. As I posted here, Clarium also was down 6.8% for the month of July. So, year to date, a rough estimate would now put them at +32% year to date. I'm also hearing they're almost completely out of commodities now. So, yet another macro fund gets its ass handed to them, what else is new? Will be interesting to see if Clarium shifts from commodities to equities, as the equity portion of their portfolio is typically minimal at best (and by minimal, I mean ridiculously tiny: 1% or less of total assets under management).

The former Chairman of the Federal Reserve, Paul Volcker, is out with some decisively negative commentary. And no, I'm not just talking about some off hand comments about how the economy sucks. He is straight up ominous. A quote from Mr. Volcker:

"Growth in the economy in this decade will be the slowest of any decade since the Great Depression, right in the middle of all this financial innovation.''

A powerful statement that could very well end up being true. The entire Bloomberg article summarizing Volcker's thoughts is definitely worth checking out.

Well, we recently got an update as to just how poorly hedge funds are performing year to date. Don't get me wrong, there are of course some standout performers. But, for the most part, they are taking it on the chin. So, if you are an individual investor getting your ass handed to you in this market.... you're not alone. Even some of the best and brightest in the game are right there with you. Hell, you're probably even outperforming some of these funds. Courtesy of the Wall Street Journal, we get a look at many notable hedge fund's performance year to date.

The Standout Performers

$35 billion Paulson & Co: +18% ytd

$26.3 billion Brevan Howard: +16% ytd

$37.1 billion D.E. Shaw: +8% ytd

$30.9 billion Bridgewater Associates: +6% ytd

$33.3 billion Och-Ziff Capital: +0.5% ytd

$16 billion Winston Capital: +10% ytd

$10 billion Caxton Associates: +5% ytd

$17 billion Tudor Investment Corp: +3% ytd

$16 billion SAC Capital: +1.5% ytd

The Not-so Standout Performers

$49.3 billion Highbridge/JP Morgan (Multistrat fund): -2% ytd

$33 billion Farallon Capital: -6% ytd

$23.7 billion GLG Partners: -14% ytd

$13 billion Eton Park Capital: -1% ytd

$19 billion Citadel Investment Group: -6% ytd

$18 billion Lone Pine Capital: -8.5% ytd

$12.5 billion TPG-Axon: -11% ytd

$8 billion Cantillon Capital: -12% ytd

$15 billion Atticus Capital: -25% ytd

The Slightly Mixed Bag

$29.5 billion Renaissance Technologies: One of their funds is -1% ytd, while their signature Medallion fund is +40% ytd

$26.9 billion Goldman Sachs: One of their funds is -2% ytd, while their Global Alpha fund is +17% ytd

And, according to Hedge Fund Research, Inc., hedge funds are having their worst year since 1990 (when they started tracking). They show that the average hedge fund is -3.43% ytd compared to -12.65% in the S&P500 and +1.05% in the Lehman Bros Bond Index.

So, results all across the board. Interesting to note though, that Atticus Capital is down 25% year to date. Just yesterday, there were rumors circulating that they were liquidating as I wrote about here. Tim Barakett, the founder of Atticus, came out and denied those rumors. The reason for such a large decline is pretty easy to pinpoint. As I've written about before, their portfolio had very heavy exposure to the likes of Freeport McMoran (FCX), Mastercard (MA), and NYSE Euronext (NYX); all of which have really been beaten down badly as of late. So, the rumors of liquidation weren't completely illogical, seeing as how the fund is down big this year. But, I want to reiterate again that they have denied the rumors that they were liquidating.

On another note, the algorithm master Jim Simons and his Renaissance Technologies Medallion fund are up big this year; very big. That's all I can really say about that, seeing as his entire operation is one giant quant enigma. D.E. Shaw & Co, fellow quant masters, are doing decently, up 8% year to date in this horrid tape.

Lone Pine Capital, managed by Stephen Mandel, (whom I frequently cover here on the blog), isn't having the best of years, but isn't getting slaughtered like Atticus is. Lone Pine is down a little over 8% year to date. You can view their most recent portfolio holdings as I analyzed here.

The "Commodities Corp Offspring," Paul Tudor Jones and Bruce Kovner have been playing the commodities markets smartly with their macro funds it seems. Jones' Tudor Investment Corp is up 3% ytd, while Kovner's Caxton Associates is up 8% ytd. With the wild swings in the commodities markets claiming the life of the Ospraie fund, I'm sure Tudor Jones and Kovner are happy to turn a profit. This year has been one wild ride, to say the least.

And, lastly, John Paulson is still kicking ass and taking names; up 18% year to date. You'll remember that Paulson correctly pegged the subprime crisis last year and profited handsomely from it.

So, there you have it. See how you stack up against some of the most revered names in the game. Some are dominating, while others are getting dominated. Welcome to the bear market.

Ahh, the endless cycle of hedge fund start-ups and failures. In contrast to my post earlier post about The Ospraie Fund blowing up here, I bring you news of a new fund emerging onto the scene. Ken Griffin's Citadel Investment Group is set to roll out their latest hedge fund, a $1 billion Global Macro Fund (pending funding, of course). Kaveh Alamouti, former employee of Macro giant Louis Bacon's Moore Capital Mangement, is set to run the fund.

We are slowly starting to see the next segway of "spinoffs" of apprentices from their masters. Years ago, Julian Robertson of Tiger Management helped mold some of the brightest minds on Wall Street, many of whom went on to start their own funds. The 'Tiger Cubs' as they are known, include greats such as John Griffin (Blue Ridge Capital), Stephen Mandel (Lone Pine Capital), Lee Ainslie (Maverick Capital), and Andreas Halvorsen (Viking Global Investors), all of whom I track here on the blog. The same can be said of the Commodities Corporation, which produced the likes of Bruce Kovner (Caxton Associates), Louis Bacon (Moore Capital Management), and Paul Tudor Jones (Tudor Investment Corp).

Now, we are starting to see these former proteges turned legends take on the role of their predecessors as they now watch their own employees/proteges emerge to manage their own funds. It's a beautifully endless cycle. Already, as I wrote about here, David Stemerman left Lone Pine Capital to start up Conatus Capital and Anand Parekh left Citadel to form Highliner Investment Group. And, as mentioned above, Kaveh Alamouti left Moore Capital Management to head up Citadel's new global macro fund. In this new spawning of "offspring," there will undoubtedly be picks of the litter, and then there will be runts. Only time will reveal who of them could possibly become the next Paul Tudor Jones or Julian Robertson. I will be watching with interest as I try to find the rising stars of tomorrow.

Thursday, September 4, 2008

I just wanted to highlight the weakness we've been seeing in technology recently. In mid-August, the Nasdaq was easily outperforming the S&P500. But, as we've slid into September, technology has given back its gains. I've been waiting patiently to add to some tech positions that are typically high-flyers. And, it looks as if that patience is finally going to pay off, as I can finally start to get back into some names I've been looking to add to my core long term positions. As I wrote about here, you've got to be prepared for inflationary or deflationary investment scenarios. While it's still unclear whether we're heading straight towards a deflationary environment, it never hurts to be prepared. At any rate, in that post, I highlighted how in both an inflationary or deflationary scenario, it usually pays off to be long technology. So, with that in mind, my longer term portfolio is looking to add to tech names to hold for the long term.

I bought Qualcomm (QCOM) back in June as I detailed here, and it has paid off nicely. I took some profits, decreasing my position size on the most recent gap-up in July (see chart below). And, I've been waiting forever for QCOM to start dipping back down to fill the gap to re-add what I sold. So, we're finally getting that dip and I'll be looking to buy QCOM for the long term at around $48 and then again at $44 if it trades that low. I like it at $48 because it offers a decent level of support. And, not to mention, I initially bought QCOM back in June at around those levels. So, you can bet I'm more than happy to add back at that level. I've got a secondary limit order around $44, which is right around both the 200 day moving average and a nice level of recent support. Then, for safety, my stop will be placed a point or two below that last limit order, below the 200 day moving average. Because, if that area is taken out, the stock is headed much lower as it will have violated its solid uptrend.

(click to enlarge)

It's not quite to my first limit order yet, but it's getting there. There have been a few negative catalysts recently which have started to send the stock lower, and I'm happy to see it happen! Seriously, I've been waiting to re-add to this position forever it seems. Yesterday, as StreetInsider detailed, Goldman Sachs removed QCOM from its Conviction Buy List. And, the day prior, QCOM's CEO was on CNBC saying, "We're seeing some evidence there's a lengthening of replacement cycles." Which, to put it plainly, means that people are putting off buying new cell phones. This near-term weakness was fully expected, seeing as how the US and other parts of the world have slowed recently. So, I will use this near-term weakness as an opportunity to start building up my position for the long term. Because, as I said before, going long technology fits both my inflationary and deflationary investment scenario models. I've picked Qualcomm simply because they're dominant in their industry and continue to perform. And, not to mention, QCOM is definitely a 'hedge fund favorite,' meaning that tons of funds have a large position in the name. As I wrote about here, Maverick Capital has a large position in the name; as does Lone Pine Capital, which I wrote about here. It's always reassuring to see respected funds with large positions in a name you follow, because undoubtedly their teams have done more research on the name combined than I most likely could ever do alone.

So, that sums it up. I will exit the name if my pre-determined stop gets taken out, or if I see a material shift in their business, which would affect their long term ability to meet estimates. But, I will definitely be looking at the tech sell-off as a place to try and establish longer term positions

Well, it certainly feels like funds are liquidating, doesn't it? After hearing news that the Ospraie Fund was closing its doors yesterday, concern mounted that they wouldn't be the last to do so. And, today rumors were swirling that $14 billion hedge fund Atticus Capital (whom we've covered here on the blog) was liquidating. Not so, claims Tim Barakett, Atticus' founder. Barakett says, "We're certainly not liquidating. In fact we have a large net cash position and are looking for opportunities to invest capital." So, Atticus denies the rumors. And, while they personally might be safe, some other funds most certainly are not. Its hard to believe that Ospraie would be the only fund to blow up in this big mess. The only reason I bring this up is because more liquidations = the market heading even lower.

(Note: Before reading this update, make sure you check out the preface to the series I'm doing on Hedge Fund 13F's here).

Time to continue the Hedge Fund tracking series! If you've missed them, I've already covered Jeffrey Gendell's Tontine Partners here, Bret Barakett's Tremblant Capital here, Peter Thiel's Clarium Capital here, Stephen Mandel's Lone Pine Capital here, Lee Ainslie's Maverick Capital here, and John Griffin's Blue Ridge Capital here. Next up, we have BP Capital. With all the commotion surrounding energy these days, it never hurts to track an energy focused hedge fund ran by none other than Boone Pickens. If you are unfamiliar with Pickens, he is an energy maverick and his fund returned 300% in 2005. He is a big advocate of Peak Oil Theory and runs an energy-centric hedge fund based in Dallas, Texas. Although he typically holds numerous positions in oil, he is also big on alternative energy (except ethanol) and has numerous holdings there as well. He most recently advocated a large natural gas position and has additionally made a big bet on wind energy. Some of his thoughts can be seen here from one of my posts. And, if you didn't know, he's pushing for energy independence with his Pickens Plan.

So, now that we've got a little background on Boone and BP Capital, let's see what they were up to. The following are BP Capital's current holdings as of June 30th 2008, as released in their most recent 13F filing with the SEC. The positions in this most recent 13F were compared to last quarter's 13F and here are the changes made to their portfolio:New Positions:BPZ Resources (BZP): 350,000 shares. This position is 0.48% of BP's portfolio.EOG Resources (EOG): 322,266 shares. This position is 1.9% of BP's portfolio.Tenaris (TS): 1,106,394 shares. This position is 3.88% of BP's portfolio.Devon Energy (DVN): 845,946 shares. This position is 4.79% of BP's portfolio.Chesapeake Energy (CHK): 1,838,129 shares. This position is 5.7% of BP's portfolio.

Added to:Occidental Petroleum (OXY): Increased position by 2.88%. Now 8.7% of their portfolio.Transocean (RIG): Increased position by 2.88%. Now 8% of their portfolio.Suncor (SU): Increased position by 105.7% (due to 2:1 stock split). Now 7% of their portfolio.Schlumberger (SLB): Increased position by 11.6%. Now 6.5% of their portfolio.Halliburton (HAL): Increased position by 65.7%. Now 6.1% of their portfolio.Denbury Resources (DNR): Increased position by 2.88%. Now 5.4% of their portfolio.Weatherford (WFT): Increased position by 250%. Now 4.5% of their portfolio.XTO Energy (XTO): Increased position by 66.66%. Now 3.85% of their portfolio.Talisman Energy (TLM): Increased position by 19.8%. Now 3.78% of their portfolio.ABB (ABB): Increased position by 2.88%. Now 3.65% of their portfolio.Jacobs Engineering (JEC): Increased position by 2.88%. Now 3.55% of their portfolio.Sandridge Energy (SD): Increased position by 2.88%. Now 3.2% of their portfolio.Fluor (FLR): Increased position by 2.88%. Now 2.75% of their portfolio.Foster Wheeler (FWLT): Increased position by 2.88%. Now 2.57% of their portfolio.Shaw Group (SGR): Increased position by 17.6%. Now 2.34% of their portfolio.Chevron (CVX): Increased position by 2.8%. Now 2.11% of their portfolio.Dresser Rand (DRC): Increased position by 2.88%. Now 1.79% of their portfolio.McMoran Exploration (MMR): Increased position by 2.88%. Now 1.35% of their portfolio.KBR (KBR): Increased position by 2.88%. Now 1.05% of their portfolio.Greenbrier Companies (GBX): Increased position by 2.88%. Now 0.56% of their portfolio.

Reduced Positions:none

Removed Positions (Positions BP sold out of completely):Titanium Metals (TIE)

Positions with no change:InterOil Corp (IOC): 1.3% of the portfolioClean Energy Fuels (CLNE): 0.2% of the portfolio

Top 10 holdings by % of portfolio:1. Occidental Petroleum (OXY): 8.7% of the portfolio2. Transocean (RIG): 8% of the portfolio3. Suncor (SU): 7% of the portfolio4. Schlumberger (SLB): 6.5% of the portfolio5. Halliburton (HAL): 6.1% of the portfolio6. Chesapeake Energy (CHK): 5.7% of the portfolio7. Denbury Resources (DNR): 5.4% of the portfolio8. Devon Energy (DVN): 4.79% of the portfolio9. Weatherford Intl (WFT): 4.5% of the portfolio10. Tenaris (TS): 3.88% of the portfolio

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Breakdown: T. Boone Pickens didn't do a whole lot of selling. In fact, he only made one sale: Titanium Metals (TIE), which he completely sold out of. But, in terms of selling... that's it. He didn't reduce any of his other positions at all. Whether he was hoarding cash or funding other purchases with his sale of TIE, who knows. But, what we do know, is that he was out adding various new positions and boosting stakes in current holdings. In terms of new holdings, Boone started some big positions in Tenaris (TS), Devon (DVN), and Chesapeake (CHK). All three positions were large enough to land in the top 10 of portfolio holdings after just being added last quarter. In terms of adding to existing holdings, Boone was adding heavily to XTO Energy (XTO), and Weatherford (WFT). He boosted his positions in XTO by 66% and in WFT by 250%. His top three holdings are Transocean (RIG), Occidental (OXY), and Suncor (SU).

The rest of additions T. Boone made are really minor. For instance, he added to a myriad of positions, increasing practically every other remaining position by around 2.8%. Don't try to make sense of this, because he did the exact same thing last quarter as I showed in the previous 13F update I wrote about BP here. Basically, it looks as if Boone has some spare cash laying around and he's slowly but surely easing into positions by adding to them by 2.8% each quarter. So, I think it makes sense to put more emphasis on the positions he has massively added to like the ones I highlighted in the paragraph above. But, at the same time, I think it's worth mentioning the various other names he seems to be slowly building a core position in over time.

That's really it concerning BP Capital's portfolio. Remember that this is an energy centric hedge fund and they undoubtedly have positions in the actual commodities markets themselves. And, we can't see these positions. Since the 13F filings we track are done through the SEC, they only track equities traded on the stock exchanges. The funds are not required to report holdings in the currency, commodity, or futures markets. So, keep in mind this is only the equity portion of BP's portfolio.

Wednesday, September 3, 2008

Eric Bolling, notable commodities trader and formerly "The Admiral" on CNBC's Fast Money is out today with some very simple advice: Trade smaller. When markets get crazy and people start taking losses, they tend to want to increase their position sizes, attempting to re-coup losses. Often times that decision turns out for the worse. So, keep things small. Cash is always a big ally in this kind of market.

Also, he mentioned he was still bullish on the U.S. Dollar and will be buying any dips, as he notes it has broken out on a multiyear basis (play it by getting long UUP). And, consequently, he feels there is still more room to the downside in energy, as various funds and traders continue to unwind positions.

As I've detailed here and here, July was a rough month for hedge funds... or anyone for that matter. Just as commodities were responsible for handsome gains in the first half of the year, they came back to bite many a fund in the collective ass. Yesterday, we got word after market close that the Ospraie Fund was set to close after posting a 13% loss in the month of July. And, August was even worse, where they lost 26.7%. Year to date, they were down 38%. Needless to say, it's easy to see why they had to close up shop.

The Ospraie Fund, overseen by Dwight Anderson, was seeing 18% annual returns from 1999 to 2006. And, it only took a few major mis-steps in commodities to make it all come crashing down. This just goes to show that everyone is vulnerable to the volatility and crazyness we've seen in the markets this year. All it takes is one big mistake and your established track record goes flying out the window (even if it was only 5 years worth). Anderson is notable because he spent time at both Julian Robertson's Tiger Management and Paul Tudor Jones' Tudor Investment Corp before starting Ospraie. As I wrote about here, his old employer Tudor Investment Corp has steered clear of disaster thus far. Scoreboard: Master 1, Apprentice 0. This just goes to show that despite working for and learning from some of the best in the business, everyone is human and everyone makes mistakes. And, in this case, big mistakes. These days, it seems as if hedge funds are so obsessed with short-term outperformance that they will do anything to succeed. "Jack up leverage, throw risk management out the window, do whatever it takes." Maybe after it's all said and done, funds will have learned their lesson and will stop placing massive bets in hopes of home runs. Probably not. Greed and fear dominate markets.

Yesterday, we saw commodities get hammered all across the board. Now you know what a possible hedge fund liquidation feels like. Most likely, Ospraie was liquidating their positions in order to return money (what's left of it anyways) to investors. I have a feeling this won't be the last big fund to close its doors as volatility in the markets (and specifically the commodity markets) continues.

For more on the story, head on over to Trader Mark's FundMyMutualFund.com. He's summed up the saga in satirical fashion here. Or, if you just want the plain-jane news stories, head here.

Tuesday, September 2, 2008

Great brief interview by Aaron Task over at Yahoo Tech Ticker from last week. Todd Harrison (Minyanville.com) thinks the Dollar has begun a sustainable rally. And, he also believes $110 is major support for oil while $130 is major resistance. And, that becomes all the more important seeing as how Oil is down $7 today and is now below that $110 threshold. Hear all his thoughts here.

Hey, just wanted to say that the site update is complete and the new template is up and running. Thanks for your patience over the weekend as I sorted through everything. I think it gives the site a 'fresher' look. The response thus far has been positive and I'd love any and all feedback. (Especially if you really hate it). After all, you're the ones reading it!

Sunday, August 31, 2008

Just wanted to give a heads up that the blog is under construction. I'm sampling numerous custom templates and as a result things will look screwed up until I get everything finalized in the next few days. Thanks for your patience.

I'll let the picture do the talking here. Taken from Calculated Risk, we see continued rising delinquencies across the board in Residential Real Estate, Commercial Real Estate, and Consumer Credit cards.

How to play it:- Short Commercial Real Estate (short CBG, short GGP, long SRS)- Short Credit Card Companies (short COF, short DFS)- Short banks with lots of leverage, lots of derivative exposure, and lots of residential/commercial real estate exposure (short HBC, WM)

One caveat with all those picks: You've got to monitor your positions like a hawk. The slightest bit of positive news can send these things skyrocketing due to short covering. Use stops, use your brain, and be swift.

Full disclosure: At the time of publication, MarketFolly was short COF, CBG, WM, GGP, HBC via puts

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